contemplating the intersection of work, the global economy, and Christian mission

Dec 12, 2016

For most Americans living today, there has been a presumption that our children's lives will be more prosperous than own. The American Dream, whatever particularities might include, has always included this assumption. It is virtually a social contract. Is the idea that most of our children will have a more prosperous life than we did really valid?

Robert Gordon, economic historian at Northwestern University, released a book earlier this year, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War. Gordon's mammoth tome documents changes in the American standard of living over the past 150 years. His research leads him to conclude that not all innovations are equally significant in improving living standards. During the period from 1870-1970, a wave of technological and social innovation emerged that radically improved worker productivity, and therefore improved our standards of living. There has been innovation since 1970 but most of it, apart from communication and entertainment, has been an extension and a deepening of the innovations that occurred prior to 1970. The period from 1870 to about 1920 was a period of development and implementation of innovations that began to have full impact after 1920. Gordon estimates the average annual growth rate in output per hour like this:

1890-1920 = 1.50%

1920-1970 = 2.82%

1970-2014 = 1.62%

For those familiar with American history, you will remember that income inequality was quite high going into the 1920s. Inequality shrank steadily and substantially over the next fifty years, until the mid-1970s. This corresponds with Gordon's estimates of rapidly improving worker productivity. Since the 1970s, there has been slower growth and the growth is more related to capital investment than to improving worker productivity. We have seen income inequality grow since the 1970s.

Gordon is doubtful that we will ever again have a convergence of innovation like we had from 1870-1970. This, combined with certain demographic headwinds, will make sustainable high growth improbable for present generations. I hope to write more about this in coming days but this graphic posted by William Easterly on Twitter caught me eye. It comes from an article by David Leonhardt, The American Dream, Quantified at Last. I take it as more evidence consistent with Gordon's thesis.

Mar 01, 2016

Are you smarter than a chimp? When it comes to knowledge about global socioeconomic trends, there is a good chance you are not. For years, Swedish global health expert, Hans Rosling, has been giving Ted talks and making presentations about global trends. One his favorite teaching tools is to ask people a question like this:

Globally, over the past 20 years, the rate extreme poverty has:

Doubled.

Stayed the same.

Decreased by more than half.

Now chimps will select at random, giving a 33% chance of each answer. Yet when Rosling asks audiences, at least half will say A, a sizable percentage will say B, while a few will say C. Yet C is the correct answer! This is the case on one variable after another. Audiences routinely score worse than chimps, choosing the most negative option.

As an old adage has it, "It isn't what we don't know that gets us in trouble. It's what we know that ain't so." That we routinely pick the wrong answer more often than chimps shows that we clearly we have bias.

In the Ted talk, How not to be ignorant about the world, Hans' son Rosling notes that part of the problem is our education system. Teachers go to college at a particular point in time and learn the state of the world at that time. But they tend not to learn about ongoing developments. The data has often been hard to come by and hard to interpret. So teachers are biased by what they learned years ago. (Reporter have the same problem.) But there are other factors.

During our evolutionary history, our brains became wired to notice threats. Hunters walking through the brush who were attentive to the possibility of tigers lying in wait, likely survived those who went about carelessly enjoying a beautiful day. So when we reflect on broad human trends, we are disposed to fixate on perceived threats. What was useful for us in the wild, is counter-productive for us as we try to interpret socioeconomic trends. If you want to outscore a chimp on an exam about global well-being, Ola Rosling suggests that you must drop your predispositions and adopt these four rules of thumb:

1. Assume most things are improving. 2. Assume most people are in the middle of a distribution, not a binary of rich and poor. 3. Assume social development precedes becoming wealthy. (Don’t assume that a population must be rich before meeting basic social needs.) 4. Assume you are exaggerating the threat if the topic is something about which you personally have great fear.

Additionally, Hans, Ola, and others have been working to build the Gapminder website to provide you with data that can be presented in meaningful ways. But one of the most important contributions the Roslings have made is their collection of entertaining and informative videos. In this post I am including every video I can find with a brief annotation. (I'll add more as I find any.) Many of the videos overlap or cover similar data but they are all well worth viewing. So here is your resource for becoming smarter than a chimp. Don't say I never gave you anything.

(This link also has links to most of these videos including some shorts not listed here: Gapminder Video)

Hans Rosling's 200 Countries, 200 Years, 4 Minutes (2010)

If you are just getting acquainted with Rosling, I'd begin here. This 4 minute presentation gives you a quick sense of what he is talking about.

Hans and Ola Rosling: How not to be ignorant about the world. TED June 2014

This is the second video to watch. The front half is Hans making his case that the world is improving and the back half is Ola explaining, as I recounted above, why are so disinclined to see positive change.

Hans Rosling: The magic washing machine. TED December 2010

This is the third one to watch. This one of my favorites. While fully embracing the concern about environmental impacts of economic growth, Rosling shows the importance of economic growth through the story of the washing machine.

THE REST ARE IN CHRONOLOGICAL ORDER

Hans Rosling: The best stats you've ever seen. TED February 2006

The TED presentation that kicked it all off. He focuses on the positive changes underway in world and points to his efforts to liberate, integrate, and animate data, and to find ways to present data the public finds understandable.

Hans Rosling: New Insights on Poverty. TED March 2007

Rosling shows that social development tends to precede economic development. He addresses the issue that unfortunately to date, economic development has always been based on fossil fuels. Higher yields, technology, and markets are key to ending poverty but there are more dimensions that need our attention like human rights, environment, governance, economic growth, education, health, and culture. The ending has a great surprise!

Rosling shows that countries that have developed from poverty to well-being have done so at far faster rates that Western nations did. Poor countries today can make the transition much quicker because of what previous countries have learned.

Jan 21, 2016

Once again, Oxfam is circulating their statistic that 62 people have as much wealth at the bottom half of the world’s population. Think about that for a moment. When you read that, what do you think that means? Particularly, what is wealth?

Many people will interpret “wealth” as financial assets. Many others realize wealth includes the value of our non-financial possessions. Therefore, Oxfam is saying that if you add up the value of all our possessions, 62 people own half. Right? Wrong! Though that is the message they want you to hear.

Terminology lesson. The sum of your financial assets and your non-financial possessions is your total assets. Wealth is your total assets minus your debt. Wealth is your net worth. Oxfam misconstrues wealth as total assets. (And as this has been thoroughly documented in the press for years now, we can only assume the misrepresentation is intentional.)

Thanks to Reuters reporter Felix Salmon, who dug into Oxfam’s sources, we know Oxfam uses Credit Suisse Global Wealth Databook to calculate their numbers. Here is how it works (using the 2015 Databook):

Step 3: Calculate the amount of wealth for the bottom half. Multiply $263 trillion by .07%. That gives $1.84 trillion.

Step 4: Get a list of the wealthiest people in the world and then add them up until you get to $1.84 trillion.

That may seem right at first glance but look at this graph from Credit Suisse’s Global Wealth Report 2015. (p. 15) It shows what percentage of each decile lives in which region of the world. I’ve added two notations.

Note that the United States has 10% of the world’s least wealthy people (circle 1). China has none of them (circle 2)! How is that possible? Because the bottom number for wealth at he left side of the chart is not zero. It is a negative number. The middle class American with a mortgage, student, loan, and consumer debt totaling more than the value of her home, bank account, and other possessions, is less “wealthy” than a Chinese peasant farmer who owns virtually nothing but also has no debt. The entrepreneur who borrowed a million dollars for his business is even “poorer” than these two. This is who Oxfam is grouping together in its bottom 50% of wealth. It is a meaningless comparison. But the deception does not stop there.

Oxfam builds a narrative that the increasing concentration of wealth at the top has the corresponding negative effect of making people poorer at the bottom. Their misrepresentation of wealth as total assets gives us no insight into this claim. I will suggest that for the poorest people in the world, income is a more critical issue than wealth or total assets. One must have an income that at least meets basic needs before she can begin to save, invest, and buy capital goods.

Extreme poverty, measured by income, is rapidly disappearing. The percentage of people living on less than $1.90 per day has shrunk from almost 40% in 1990, to less than 10% today (and we have added an extra 2 billion people.)

Furthermore, the global distribution of income has been progressively moving toward a bell curve distribution and away from a bi-modal distribution, with wealthy people clustered at the top and very low income people clustered at the bottom.

And this chart shows hows the mean and median global per capita income numbers keep rising, also noting that the global GINI coefficient declined from 68.7 to 64.9 between 2003 and 2013. (Lower GINI number means more equality.)

To me, this chart suggests that recent trends in technology and globalization have benefited billions of people who once lived in bare subsistence poverty. There is a small minority of people at the left of the chart who are not being touched by these changes, most of them living in counties with turmoil and failed nation-states. At the extreme right are the owners of capital who have benefited from productivity and expanded trade. Middle class people in developed nations have experienced downward pressure on their wages due to technology and from a burgeoning supply of labor in a global economy. However, living standards are not just a function of wages but also the cost of living. A case can be made that the developed world middle class had improvements in living standards because globalization kept the cost of living lower than it otherwise would have been. That does not show up in this chart. It is more complex than this but I think a chart like this is a better place to begin a discussion.

In short, Oxfam wants to promote a narrative that casts global capitalism primarily as an exploitative enterprise, a zero-sum game where the growth of wealth at the top necessarily means the reduction of wealth at the bottom. The narrative intuitively makes sense. Some version of this thinking is common but it is virtual gospel on the left where the moral compass is directed predominately by equalization rather a robust conceptualization of justice. But it is wrong. It is every bit as ideologically myopic as the "free markets and democracy fixes everything" mantra on the right.

Finally, let me be clear about what I did not say. I did not say I thought that the growing concentration of wealth at the top was good, that there are not masses of people who need substantial improvement in their economic well-being, that global capitalism is an unqualified good, or that there are not profound economic injustices in the world. I did not speak to any of Oxfam's proposed policy solutions. Discernment on economic issues is complex and requires our best efforts at sound analysis if we want to be bring lasting and just change. Oxfam's misuse of the data to support ideologically predetermined policy's does not help. They are telling the truth about the numbers they use, knowing the numbers they use will lead most of us. That is what I'm addressing.

Oct 21, 2015

This chart comes from Timothy Taylor's post The Shifting World Distribution of Income. One notable thing I saw was that median annual income (measured in purchasing power parity dollars) doubled from 2003 to 2013. This chart suggests it will double again within about 20 years. Of course, the most obvious change is the collapse of the spike in at the low end of chart, indicating the rapid decline in the number of people living in or near extreme poverty. See Taylor's post for more details.

Oct 20, 2015

Denmark became a central topic during the Democrats' debate last week. Bernie Sanders calls himself a democratic socialist. Hillary Clinton loves Denmark but is dismissive of the idea that America can be Denmark. This inspired a number of articles by various commentators about the truth behind Denmark economic model (or the Nordic model more generally.) Progressives like the high taxes, low inequality, and high government spending. Conservatives counter by noting that the Nordic countries rank among the countries highest in free trade and low corporate taxes. I've been linking articles on Facebook but I thought this piece in Niskanen was the best. Double-Edged Denmark

Right-leaning arguments about the free-market marvel that is Denmark cut both ways. Denmark shows us that a much larger public sector and a much more robust social-insurance system need not come at the expense of a dynamic market economy. In other words, Denmark shows us that capitalism and a large welfare state are perfectly compatible and possibly complementary.

The lesson Bernie Sanders needs to learn is that you cannot finance a Danish-style welfare state without free markets and large tax increases on the middle class. If you want Danish levels of social spending, you need Danish middle-class tax rates and a relatively unfettered capitalist economy. The fact that he’s unwilling to come out in favor of either half of the Danish formula for a viable social-democratic welfare state is the best evidence that Bernie Sanders is not actually very interested in what it takes to make social democracy work. The great irony of post-1989 political economy is that capitalism has proven itself the most reliable means to socialist ends. Bernie seems not to have gotten the memo. But Bernie Sanders isn’t the only one failing to come to terms with the implications of Danish social-democratic capitalism.

The lesson free-marketeers need to learn is that Denmark may be beating the U.S. in terms of economic freedom because it’s easier to get people to buy in to capitalism when they’re well-insured against its downside risks. That’s the flipside irony of free-market “socialism. ...

... the reason the U.S. is lagging so far behind big-government Denmark on free trade, corporate taxation, ease of doing business, and more may very well be that the American safety net isn’t good enough, and economic insecurity at the bottom and middle makes free-market policies a tough sell to anxious American voters.

I don’t know that this is true. But, then again, libertarians and free-market conservatives don’t know that it’s not. Mostly, ideological American capitalists really badly want to believe it’s not true that we’re falling behind Denmark as capitalists because we’re not redistributive enough. (I mean, the previous paragraph made me feel like I was channeling E.J. Dionne, which was … unsettling. But let us put away childish things.) Because if it is true, and social insurance and capitalism are complementary in this way, then champions of economic liberty will be forced to face up to the possibility that attacking the welfare state undermines support for laissez faire economic policy. Some of us might even be forced to choose between our love of capitalism and dislike of the welfare state. Awkward. ..."

Economic development always includes, in some broad sense, an embrace of trade and freedom from arbitrary interference in market activity. Yet when you look at the various nations that rose to affluence in the last century, diverse paths were taken to get there. The particular path toward trade and freedom seems not to be as important as is the issue of stability. When the various players in the economy and society behave in predictable patterns, they are better able to predict and coordinate their behavior, even if the patterns are not optimal in terms of trade and freedom. Imposition of trade and freedom that generates too much instability may be worse than simply staying with less effective economic models in the short-run and letting things evolve.

This need for security and stability is a piece that is frequently undervalued by most libertarians at both the macro and micro levels. Economic historians will tell you that one of the pivotal developments in history (among several) was the emergence of limited liability. People could pool their resources and form joint ventures without putting their entire assets at risk. Bad choices or unforeseen developments would not leave you destitute.

If the aim is a dynamic risk-taking economy leading to high productivity and economic growth, then we need security and stability for citizens. With a basic safety net in place (here I’m thinking mostly of a guaranteed minimum income as opposed to our wasteful welfare industry), people would become less risk-averse, knowing that trying new stuff doesn’t lead to destitution if you fail.

But if libertarian conservatives are blind to issues of security, then progressives are blind to productivity and economic growth. Take the living wage debate. It is said that Walmart’s low wages are possible because we taxpayers subsidize the workers through the welfare system. Nonsense. Welfare support drives up wages. If the wages aren’t at least comparable to welfare options, then why work?

Furthermore, while each business should have the aim of helping their employees flourish (improving their skills and providing opportunity to gain more responsibility in a safe environment), businesses are neither benefactors nor aid agencies. They are the institutions responsible for transforming matter, energy, and data from less useful forms to more useful forms on a sustainable basis. Sustainability means creating more value than the value of resources being used. Wages artificially set above the economic value contributed by labor are unfavorable to productivity and sustainability.

I know of no country, including the Nordic countries, who presume that every job in every circumstance should provide a “livable” income “unsubsidized” by government. Minimum wage is a temporary introductory wage people earn as they develop skills and experience. Few earn it for more than a period of few months. Excessively high introductory wages compels businesses to adapt in ways that reduce the amount of this labor they use, and decrease the opportunities for the least-skilled to find an on-ramp into the economy.

So while precisely replicating the Danish or Nordic model in a large diverse nation like the United States may not be feasible, there are lessons here. To the degree the Nordic models have worked, they have done so because they have successfully married security and growth. This is a managed polarity for them, much like breathing embraces both inhaling and exhaling. In America, our partisan factions each grasp one pole of the polarity and demonize the other. To the degree either succeeds, we are in deep trouble. That is the lesson I learn from double-edged Denmark.

Jun 24, 2015

Globally, the number of people living in extreme poverty ($1.25 a day) is shrinking. The global poor are not getting poorer. The world population grew from 4.5 billion people in 1981, to 6.9 billion in 2010, - a 60% increase. The percentage of people living in extreme poverty in developing nations dropped from over 50% to 21%. (From about 1.95 bil to 1.2 bil - and estimates are now well below 1 bil in 2015.)

That doesn't mean life just above the extreme poverty line is desirable. That doesn't mean there isn't a great deal more to do. But let's be honest about the trajectory. And let's also be honest that central to the decline in extreme poverty has been inclusion of the poor in networks of productivity and exchange - that is to say, they embraced some form of market capitalism. Unqualified dismal of "capitalism" (almost never defined by critics), as some religious leaders are prone to do, should be challenged.

Jan 28, 2015

Over the last sixteen years, the share of pre-tax income earned by the top 1% has ranged between 17% and 23%. I calculate an average of 20% over that time frame, precisely where it is today. Read Mankiw's post for more details.

A peculiar note: I suspect if you were to show this data from 1975 forward without the title and the y-axis label, I suspect many people would think this was a graph about global warming.

(Source: Milanovic, B., Lead Economist, World Bank Research Department, Global income inequality by the numbers. Annotations by James Plunkett.)

I have seen the unannotated version of this graph several times but the annotations really make things clear. The graph shows that much more is going on here than simplistic narratives of "The are getting richer, and the poor are getting poorer" (the graph discredits the second half of that statement) and the 1% versus everyone else.

Jul 30, 2014

"... What about the politics of a universal basic income? It's no surprise that many who lean liberal like the idea of guaranteeing a basic income. However, the idea has a reasonable number of conservative and libertarian supporters, who like the idea of a program that addresses the basic concern over helping those with low incomes, but in a clean, clear way that involves much less interference of eligibility rules and phase-ins and phase-outs in people's lives. Dolan claims that there are lively debates over a universal basic income happening behind the scenes between those with very different political persuasions.

The idea of a universal basic income is appealing to me in theory, but I have a hard time believing that once enacted, the U.S. political process would be willing or able to leave it alone. One one side, those who favor higher tax rates for those with high incomes would immediate start trying to figure out ways to claw back payments to those with high incomes. On another side, there would be continual pressures to reinstate programs like Food Stamps, or targeted welfare payments for certain types of families, or favored tax provisions for home-buying or charitable contributions or retirement. There would be continual political pressure to alter the amount of a universal basic income, as well. The U.S. political system does not excel at replacing complexity with simplicity, and then leaving well enough alone."

Jun 02, 2014

When it comes to understanding inequality, the debate is frequently encumbered with a multitude of misunderstandings about data. When talking about wealth inequality, we see statements like “85 people own more wealth than the bottom half of humanity.” Wealth is routinely misunderstood to mean the money and things someone owns. It isn’t. Wealth is someone’s total assets minus their liabilities. It is common to have negative wealth. The peasant farmer in rural China who has managed to save $200 and is debt free, is “wealthier” than the high-income young M. D. who has a negative net worth due to substantial student loans (i.e., she owes more than she presently owns.) I recently wrote about this in The World’s Bottom 10%: 7.5% Live in North America and None Live in China … And Other True But Worthless Facts.

Then there is the constant citation of growing inequality in pre-tax and pre-transfer income in the U. S. (usually just stated as “income”), and the need to rectify it through redistribution. But if you only look at pre-tax and pre-transfer income, no amount of redistribution will have one penny of impact. We could transfer $100,000 to every household in the bottom half the income distribution and it wouldn’t matter because it would be income after taxes and after transfers. When we look at after-tax and after-transfer income, we see that there has been little change in inequality between those at the 95th percentile and those at the 20th percentile for the last twenty years. See my post, Is Income Inequality Really the Problem? It Depends on What You Call Income.

Today, Arnold Kling reviews Chasing the American Dreamby sociologists Mark Robert Rank, Thomas A. Hirschl, and Kirk A. Foster. (See Kling's post: The Longitude of Well-Being) He cites a stat that shows that homeownership rates have remained fairly constant at about 67%. Kling then asks you what percentage of Americans aged 55 have owned a home? A) 50%, B) 70%, and C) 90%. Kling says he would have guessed 70% when in fact it is 90%. The 67% number is a cross-sectional piece of data, taking a “snapshot” of homeownership at a given point in time. The 90% number is a longitudinal piece of data, taking a “video” of homeownership for over a period of time.

… the question that I asked concerns what demographers refer to as longitudinal information. If you follow given individuals over a long period, what sort of cumulative outcomes will you observe? In particular, over a lifetime, how many people will at some point own a home? To answer a longitudinal question, you need to use longitudinal data. To instead use time-series cross-section data risks making serious errors.

Most of the conventional wisdom about relative economic well-being, including the famous studies by Thomas Piketty and Emmanuel Saez, commits the time-series cross-section fallacy. Rank, Hirschl, and Foster did not set out to debunk this fallacy or to attack the many economists guilty of it. Instead, they took what seemed to them a natural approach for studying the evolution of wealth and poverty: longitudinal data. The result, in my reading, is that, like the boy in the fable, they have in an innocent, unintended fashion exposed statistical nakedness among many economists who are regarded as experts on the topic of inequality.

Once you think about it, the truth about homeownership rates makes sense. At some point in our lives, nearly all of us have been renters. In addition, most of us are likely to "downsize" as we grow older, and in the process many of us may choose to rent.

Kling moves on to the authors’ discussion of how many years a household spends in poverty or in affluence between ages 25 and 60. Kling offers an interesting alternative.

I would be interested in what the data show if, rather than looking at the extremes, one does the opposite. That is, throw out each household's lowest and highest three years of income. For the remaining years of income, take the average relative to the poverty line. If this average is below 150 percent of the poverty line, call it low. If it is above 500 percent of the poverty line (which works out to about 200 percent of the median), call it high. Then calculate the proportion of households that have high, medium, and low incomes by this longitudinal measure.

This would produce a very different breakdown. For instance, suppose that, rather than quitting my job to start an Internet business, I had kept working and that my salary had continued to increase gradually until I reached age 50. In that case, under the authors' measure, our household would be in the bottom of the income distribution, because of the "poverty" of my graduate school years and my failure to achieve the income level that they require for "affluence." However, using my approach, my household would have been somewhere in the vicinity of the boundary between high-income and middle-income. That seems much more reasonable to me.

Overall, as with homeownership data, the longitudinal view of income paints a picture in which life-cycle variation and idiosyncratic factors play a role. This role is overlooked in discussions of inequality that commit the time-series cross-section fallacy.

As I read Kling’s piece, I began to wonder how many people have had pimples. My guess is that the answer approaches 100%. Yet we don’t see headlines about acne being experienced by more than 90% of people at least one year in their lives. We understand that for most people this is a temporary life-stage issue. The universe of people for whom acne is an ongoing problem is much smaller. The same is true with poverty. I’m intrigued by Kling’s idea of discarding outliers and looking at 90% of the data between the outliers.

The reality is that no one set of data, or particular lens, can tell us the whole picture about issues like poverty and inequality. We must look at the issues from multiple angles to get to the truth. But it is incumbent on us to be cognizant of what lens we are using at any given time and what that lens is actually showing; in this case, knowing the difference between a snapshot and a video.

May 22, 2014

Well, I think I might have met his match. She's called Deirdre McCloskey. ...

... McCloskey on the other hand, who is meant to be the conservative one, has the zeal of a revolutionary. She describes herself as an ex-Marxist, Christian libertarian. She is the most notable transgender economist in the world (I can’t recommend strongly enough Crossing, A Memoir, her moving account of her journey from Donald to Deirdre.) She is an entertainer and storyteller; one of the few serious economists who is as likely to quote the poetry of Robert Burns in support of an argument as she is to quote wheat prices in the 15th century.

But forget the characters. It is the intellectual contrast which gets to the heart of the debate between those who worry about in-equality and those who don’t. ...

... McCloskey, by contrast, has long argued that economists are far too preoccupied by capital and saving. She doesn’t even like the word capitalism, on the grounds that capital is not what got us where we are today. ‘If Scotland is trying to become Holland, then capital accumulation is how to do it. That will double your income, maybe triple it.’ But for her, that sort of accumulation is a scratch-card-sized prize — and the lottery jackpot beckons. She enthuses about the Great Enrichment of the 19th century. ‘What happened, understand, is not 100 per cent growth, but anywhere from 2,900 per cent growth to 9,900 per cent growth. A factor of either 30 or 100.’

That jump in incomes came about not through thrift, she says, but through a shift to liberal bourgeois values that put an emphasis on the business of innovation. In place of capitalism, she talks of ‘market-tested innovation and supply’ as the active ingredient of our economic system. It is incidentally a system ‘drenched’ in values and ethics overlooked by economists. ...

... The answer to that question determines what should be done about inequality. Piketty wants a progressive tax on wealth to prevent high returns entrenching the power of the richest. McCloskey, needless to say, is not keen on redistribution. Taking from today’s rich may give you a one-off uplift in the incomes of the poor of, say 30 per cent, she says; but that is nothing to the uplift from innovation and growth, which can double incomes every generation.

So much for the central disagreement between them. Here’s my problem. Many people with strong views on inequality consciously or unconsciously think of this as a binary choice: profits go to either a deserving or undeserving rich, depending on your view. It’s all about capital, or all about wealth creation. But I struggle to see it that clearly. I’d like to know how much of the return on capital that so concerns Piketty is actually income earned from entrepreneurial wealth creation. I’d also like to know how important that income is to innovation.

Piketty is well aware of this vulnerability in his argument. ...

...

She is admirably pure in her view, but is it as black and white as she portrays it?

Bill Gates or Liliane Bettencourt? They co-exist, of course, and have both had a pretty good time of it in recent decades. The question is which one better characterises the very rich. And also which risk you would rather take: taxing the Bills at the risk of deterring them from creating Microsofts? Or not taxing the Lilianes, at the risk of letting them become ever wealthier and more powerful while sitting at home doing nothing?

I know that the 99 per cent of the population have no difficulty coming to a view. I’m in the sad 1 per cent, who can see both sides.

Very interesting article! I lean more in McCloskey's direction. I think the impact of innovation is invisble to so many and it is radically underappreciated by others who acknowledge it. But I also share the ambivalence so well expressed by the author in this article. Here is a clip of McCloskey:

May 07, 2014

Are the rich getting richer and the poor getting poorer? Stories about inequality typically talk about how the rich, especially the top 1%, are seeing their incomes grow rapidly while people at the bottom are seeing their incomes stagnate and drop. A gap is widening between the top and the bottom. Is that true?

The Federal Reserve Bank of Minneapolis has just published an interesting report that studies the relative income performance of households from 1967-2012. It compares households at the 95th, 50th, and 20th percentiles of the income distribution. The reports distinction between two types of income is revealing: Market income and disposable income.

Market income (pre-tax and pre-transfer income) is what we typically see reported. But when we adjust for taxes (which substantially decreases the income of the wealthy) and add in transfer income like social security, unemployment, and welfare payments (which substantially increases the income of people in poverty) we get disposable income. Disposable income paints a much different picture than market income. Let's look at two important graphs:

The top line in the chart is the ratio of market income (pre-taxes and transfers) of households at the 95th percentile as ratio to households at the 50th percentile. For example, it appears the households at the 95th percentile made 2.7 times as much as those the households at 50th percentile in 1967. By 2012, they were making about 3.6 times as much. The bottom line tells a different story.

Disposable income (after taxes and transfers) follows a similar pattern until about 2000 when the ratio leveled out at just below 3.0, and has remained between 2.9-3.0 ever since. That means that despite market income having risen faster for the 95th percentile compared to the 50th percentile, inequality in terms of what people have to spend at the end of the day hasn't really changed for almost fifteen years.

Then there is this chart:

This chart shows the ratio of the 50th percentile to the 20th percentile. Note the ratio of market income continues to widen with each business cycle. The recessions, shaded gray, result in spikes of unemployment. That expands the ratio and then the ratio contracts a little as employment improves. The sharp jump at the end correlates with very high unemployment and underemployment.

But the striking thing is the disposable income line. It is flat from 1983 onward (until a slight increase since the 2008 financial meltdown.) There has been virtually no change in inequality between the 50th percentile and the 20th percentile for thirty years!

Some observations:

1. The debate raging around inequality typically points to the widening gap in market income between the top and bottom. More transfer of wealth is proposed to balance out the income people receive. Market income and disposable income are conflated. If a household with a market income of $15,000 gets transfers of an additional $15,000, for a total of $30,000 in disposable income, they still have a market income of $15,000! Pointing to market income statistics as an indicator that distribution of income is insufficient is erroneous. By this reasoning, a $15,000 household could get $1,000,000 in transfers but they would still be "living in poverty" because transferred income is not being considered in the income calculation.

2. This analysis focuses only on households at the top 5%, not the top 1%, where so much of the debate has been. For reasons reported in the article, the data did not lend itself to a study of the very top 1% or 0.1%. The ratio of disposable income of the very top to lower percentiles may be increasing. But it is certain that the ratio of disposable income is much lower than market income.

3. This study seems to suggest that public policy has been doing a very good job of preserving disposable income ratios for many years. We may want to debate if these ratios are just but they are not widening.

4. The fact the market income ratio continues to widen, meaning it takes evermore transfers to keep disposable income constant, suggests that low wages and unemployment, not insufficient transfers, are becoming the problem. Left leaning figures like Robert Reich argue that decline of union bargaining and failure to raise the minimum wage are the culprits. Companies aren't paying employees relative to their economic contribution. That leaves taxpayers to subsidize the work that these companies get from low wage workers. Other economists suggest the labor market is more efficient then that and that most employees are being compensated relative to their economic contribution. While very modest minimum wage increases are likely without much impact on the total labor market, substantial jumps in the minimum wage are likely to lead to automation and off-shoring, thus more unemployment and even more need for transfers than the alleged subsidization of low-wage workers today. Who knows exactly where the truth lies.

We do know that technology and the economy is rapidly changing. That means we need a workforce with the human and social capital to take advantage of such changes. Strong families and educational systems are central to developing that capital and we know these institutions have been weakening for some time. That doesn't help the market income challenge.

Bottom line, disposable income inequality is not getting worse for the bottom 95%, and it seems likely that whatever inequality is growing between the top 1% and the rest is substantially less than the market income widely reported. Maybe present distributions of disposable income are unjust. That is worthy of debate. But that is different from saying inequality is growing. Market income inequality continues to rise and what is unclear is if there is a policy fix for this or if this is market income inequality is inherent in a post-industrial and digital economy.

May 02, 2014

Lots of attention being given to a new World Bank study suggesting China may overtake the United States this year as the world’s largest economy, adjusted for living costs. But this other World Bank finding, noted by the Financial Times, is also interesting:

When looking at the actual consumption per head, the report found the new methodology as well as faster growth in poor countries have “greatly reduced” the gap between rich and poor, “suggesting that the world has become more equal”.

As the above chart shows, high-income countries in 2005 had 16.4% of global population and 60.4% of global GDP vs. 16.8% of population and 50.3% of GDP in 2011. Although income inequality within nations may be on the rise, global economic inequality between nations is collapsing.

But here’s what is really amazing: Back in 2005, low-income countries represented 7.1% of global GDP vs. 1.5% today. Now it’s not as if these nations became poorer. Rather they moved up the income ladder. In 2005, 35.4% of global population lived in “low-income countries.” Now that number is just 11.1% as more than 1 billion humans “moved” into middle-income nations which now represent 72.1% of global population vs. 48.2% in 2005. ...

I've seen the graphy below but it points to aninteresting dynamic. It seems to suggest as economic growth happens in developing nation, the distance between the top and bottom of the income ladder widens considerably, leading to increased inequality in the nation. But economic growth also seems to move the very bottom of the distribution away from zero. It brings the income distribution more in line with developed nations, thus reducing the inequality between nations.

Apr 30, 2014

It’s grotesque, but income inequality isn’t as harmful as we think. ...

... But as New York Times economics writer Eduardo Porter noted recently, claiming that wealth inequality is unambiguously harmful is more about ideology than evidence. He cites the struggles of Harvard scholar Christopher Jencks, a leading chronicler of the middle class, to complete a planned book on income inequality. After years of research, Jencks was convinced that the only true statement about whether and how income inequality harms society is “It’s hard to tell.” Progressive economist Jared Bernstein has also found that we can’t prove the assumption that inequality leads to slower growth, given available evidence. It may be true, Bernstein wrote, but we do not have enough concrete proof.

The work of Jencks and Bernstein complicates the neat narrative of robber barons and a new Gilded Age harming the middle class. Because those views lack black-and-white simplicity, however, they tend to receive less attention. Which is a shame, because they’re probably closer to the truth.

The assumption of a causal link between excessive pay at the top and low growth and stagnant incomes fuels the drive to reframe the tax code toward greater redistribution. There is a strong moral case for that, especially insofar as massive gaps between the rich and the rest can be so insurmountable as to severely dent the idea of equality enshrined in the founding of the U.S. That said, even aggressive redistribution will not fundamentally solve what now ails us. ...

... The top 100 CEOs in the survey took home a total of $1.5 billion. That’s rather nice for them, but redistributing, say, $1 billion of that would do almost nothing to help the 100 million people at the bottom of the economic pyramid in the U.S. Even if you included upper management and got to, let’s say, $100 billion, the extra income distributed across American society would barely improve living standards. Boards could mandate that, say, Larry Ellison of Oracle should be less wealthy so that Oracle employees could be more wealthy, but Oracle employees are already on the winning side of the global economic equation. They are not the ones who need help.

Let’s say then that you created an inequality tax, as Robert Shiller of Yale has proposed. That could certainly generate some extra billions, which could then be redistributed. But even there, the super-rich would only become slightly less super-rich, while those whose incomes are stagnating or those tens of millions underemployed and caught in a web of structural unemployment would see marginal improvement at best. In short, measures to reduce inequality might be modestly helpful, but they wouldn’t solve much. ...

This piece highlights once again that for those truly interested in working for a just and prosperous world you have to move beyond populist "bumper-sticker" economics.

Apr 24, 2014

The top 1% versus the 99% is emerging as popular topic once again. I wonder how many people genuinely reflect on who makes up the 1%. My perception is that many people see the 1% as a highly cohesive static segment of the population. It isn't.

Social scientists use two different types of analysis when analyzing data about populations. There is a cross-sectional analysis. These studies are a snapshot-in-time look at a given population. There is also longitudinal analysis. These studies measure the characteristics of a population over time. Cross-sectional studies are like looking at a photograph and longitudinal studies are like looking at a series of photographs complied together to give a motion picture.

Let's say we had unfettered access to IRS data. We could analyze the income of each person for each year over many years. A cross-sectional analysis would allow is to see who was in the top 1% in, say, 2010. But how many of these people are truly wealthy in the sense of an ongoing lifestyle of riches and influence? There is no way to know from this analysis. Longitudinal analysis is needed.

So let's imagine two extremes over a ten year period. At one extreme is the idea that income is totally random. In that case, we would see no pattern in who makes up the top 1%. At the other extreme is the idea that the people in the top 1% are the exact same people that were in the top 1% ten years earlier, with a few adjustments for dropping people who died and adding people, mostly heirs, who took their place. The populist references to the 1% suggest something much like the latter is reality.

... Thomas A. Hirschl of Cornell and I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking.

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60). ...

... Likewise, data analyzed by the I.R.S. showed similar findings with respect to the top 400 taxpayers between 1992 and 2009. While 73 percent of people who made the list did so once during this period, only 2 percent of them were on the list for 10 or more years. These analyses further demonstrate the sizable amount of turnover and movement within the top levels of the income distribution. ...

... Ultimately, this information casts serious doubt on the notion of a rigid class structure in the United States based upon income. ...

Other studies I've read show that even among those who make a high income for a string of years, it is difficult to stay at the top for more than a generation or so. Children rarely repeat the type of income production their high achieving parents did. Studies of corporations show that is exceedingly difficult for a corporation to dominate top spots on the corporate hill for more than a decade or two. Once decline sets in, only a small minority are able to recover past glory. We can probably count on one hand the number of corporations that have recovered three times in the past century or so. The point being that top spots in income for individuals and for corporations is more precarious than is often appreciated. And it is also true that there is considerable variation income over the lifetime of individuals found in the bottom 99% in any given year.

Raging against a monolithic unchanging 1%, sucking up all the wealth and condemning the masses to a perpetual Dickensian dystopia, is way over the top, but it makes for pithy bumper stickers and effective sloganeering for certain ideological camps. Genuine interest in understanding and addressing economic challenges ... unemployment, stagnate wages, automation ... requires a significantly more nuanced approach.

Apr 07, 2014

Back in January, Oxfam published a statistic saying that 85 people have more wealth than the bottom half of the world population. It has become a widely circulated stat in the debate about inequality. (Forbes recently countered that the number is actually 67 people.) But what to do these numbers mean? I know full well that when most people hear “wealth” they envision how much money and stuff people own. That is incorrect. These are assets. Wealth is your assets minus your liabilities (i.e., debt). What difference does that make?

Felix Salmon, a writer at Reuters, did some digging into the Oxfam report to find the data upon which they based their claims. (See: Stop adding up the wealth of the poor) It comes from Credit Suisse’s 2013 Global Wealth Databook and here is a graph Salmon clipped showing another take on the data:

Notice the top left corner of the chart. It shows that 7.5% of North Americans are in the bottom 10%. If you look further down you will see that virtually no one from China is. How is that possible?

Take two hypothetical people:

1. American Physician – A new physician with a salary of $150,000 a year. She has $125,000 dollars in student loans and a car with a $25,000 loan. That totals to $150,000 of debt. She is renting an apartment. Her total assets including cash, car, and other items equal $50,000. That means her wealth is a -$100,000.

2. Chinese Peasant Farmer – A Chinese farmer who earns the equivalent of $3 a day, or $1,400 a year. He has managed to save $50 in cash and he has property worth about $250. He has no debt. His wealth is $300.

The physician would likely be found in the lowest decile while the farmer will be in the third or fourth decile. By Oxfam’s reasoning, the farmer is much wealthier than the physician! That is technically true but does this have any correspondence with what most people think of when the think of "wealth?"

Just as advanced economies have upper income levels that far outstrip the upper levels of emerging nations, so do they also have people with huge sums of net debt that far outstrip what people would have in emerging nations. Consequently, people from more advanced economies are going to dominate at either end of the wealth distribution. (You see evidence of this in the chart by the higher percentages at the extremes for North America, Europe, and Asia-Pacific excluding China and India.) People who are unable to earn or borrow much are going to be more toward the middle of the distribution. But as with the physician, high debt doesn’t necessarily mean deprivation.

Wealth is a useful measure for some purposes but if we want to get an accurate picture of economic well-being we most also include measures like income. Particularly important is consumption per capita because “income” doesn’t include transfers and non-cash assistance. Statistics often show people routinely consuming as much as double their cash income because of this discrepancy. Consumption tells much more about how people actually live. In short, Oxfam’s stat is great for sensational headlines but does little to educate us about the challenges people face.

Apr 01, 2014

Robert Reich’s increasingly well-traveled observation is that “The 400 richest Americans now have more wealth than the bottom 150 million of us.” But think about what that means. What is “wealth?” I routinely sense that most people incorrectly think this means how much money you have, or much stuff you own including money (i.e., assets.) No.

Wealth is the sum of your assets minus the sum of your liabilities. Consequently, the person with a $300,000 home, $25,000 car, and in other assets of $50,000 (total assets of $375,000), and with a $275,000 mortgage, $25,000 car loan, and $80,000 in student loans and other debt (total liabilities of $380,000) has a net worth (i.e., wealth) of -$5,000. The homeless person living under a bridge with no assets and no liabilities is wealthier than this person. Approximately 1 in 5 households have negative net worth, which means your new born baby is wealthier than 60 million Americans.

The fact is that most of us start out as young adults with very little wealth (i.e., assets minus liabilities). In fact, I suspect many high school grads are wealthier than many recent college grads because college loans create a negative net worth for many. Wealth builds over the years through saving and investment. Someone with a modest income who is 55 years old and has been regularly saving and investing well likely have hundreds of thousands of dollars in wealth, while many 25 year olds with professional degrees and good incomes will be at break-even or even have negative wealth. Wealth inequality is part of the natural process and it will always be considerably greater than income inequality.

Reich’s statement may be true but it strikes me as sensationalist without more context. A great many of the 150 million people at the bottom have considerable assets but also have much debt. Some in the top 150 million have modest assets but little debt. I suspect Reich’s statement gives the impression to many that half of America lives on just a few dollars a day. I’m just saying we need to be more clear in our thinking.

Mar 31, 2014

In fact, the gain in wealth share is all about the top 0.1 percent of the country. While nine-tenths of the top percentile hasn't seen much change at all since 1960, the 0.01 percent has essentiallyquadrupled its share of the country's wealth in half a century....

... It turns out that wealth inequality isn't about the 1 percent v. the 99 percent at all. It's about the 0.1 percent v. the 99.9 percent (or, really, the 0.01 percent vs. the 99.99 percent, if you like). Long-story-short is that this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it's this investment income, rather than ordinary earned income, that's creating this extraordinary wealth gap.

The 0.1 percent isn't the same group of people every year. There's considerable churn at the tippy-top. For example, consider the "Fortunate 400," the IRS's annual list of the 400 richest tax returns in the country. Between 1992 and 2008, 3,672 different taxpayers appeared on the Fortunate 400 list. Just one percent of the Fortunate 400—four households—appeared on the list all 17 years.

Feb 12, 2014

The economist has an excellent presentation (less than two minutes) on how assortative mating has influenced income inequality. This closing chart sums it up.

Fifty years ago there weren't many well educated women with high earning potential. In fact, the percentage of adults with college degrees in 1960 (overwhelmingly men) was about 7%. That means 93% had a high school education or less. Fifty years later the percentage of adults with college degrees is 25% and is split nearly equally among between the sexes. People of like education tend to marry each other, thus creating an explosion in the number of households with two high income earners. That stretches the household earning distribution greatly and moves the mean income out much farther to the right on a chart. Thus, even if low-education households have stayed the same in inflation adjusted income, their relationship to the mean will be considerably lower.

We have long known that income inequality shrank from the early decades of the last century until the late 1960s. It has risen more or less steadily ever since. See this graph of the GINI coefficient.

I've seen many people try to link rising inequality to political policies like the 1980s tax cuts. Such actions may have had a marginal impact but the event I see that correlates much better is the rise of the women's movement in the late 1960s and improving earning potential of women in the following decades.

(On a side note, these discussions are usually about household "income." This is income before taxes, transfers, and non-cash benefits. Transfers and non-cash benefits have expanded greatly over the last fifty years. When factored in, some the disparity shrinks. Even the lowest quintile of households has seen improvement, just not as great as quintiles further up the scale.)

Jan 27, 2014

... Globalization has winners and losers. The winners—particularly the upwardly mobile middle classes of China, India, Indonesia,Brazil, and Egypt—occupy the long hump of this elephant-like line. They have seen their inflation-adjusted incomes grow by 70 percent or more. The world's "1%" (which works out to the top 12 percent of the U.S., or households making more than $130,000) is also racing away with income, particularly at the tippy-top.

But the story for world's poorest percentiles has been the same as for the developed world's lower-middle class: No growth or worse. ...

...Biblically speaking, probably not. As Jesus warned, you have to choose. Either money rules you, or your highest values rule you. There's no middle ground. "No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money." (Luke 16:13)

Jesus was not a capitalist.

God's rules on economics, as articulated both by the prophets and Jesus of Nazareth, are strikingly clear. Not small concentrations of great wealth and the vast majority of people in poverty, but 'each under their own vine and fig tree, living without fear.' (Micah 4:4) Jesus announces his ministry as "good news to the poor" (Luke 4:18), that is, the "Jubilee," the really radical redistributive economic strategy of ancient Israel.

So, is it likely the leaders gathered at the World Economic Forum in Davos serve that vision, a vision of a reasonable abundance shared by all, or are they in service to the vast accumulated wealth of the 1 percent? Is it going to be possible for people at that meeting to enact policies that start to close this disastrous economic gulf between the rich and the poor? ...

First, advanced agrarian societies of the Near East and Rome are the context of the Bible (Hebrew and Christian Testaments.) The economy, to the limited degree they even thought in macroeconomic terms, was a zero-sum game. Land and labor were the two inputs for production. Both were relatively fixed. There was little you could do to alter the productivity of land and one person’s labor was not substantially different from another's. Consequently, with variable productivity off the table, economics was constrained to considerations of consumption and distribution. Both personal and societal abundance was cyclical and sharing of the fixed pie was essential for community survival.

The great divergence of the past two centuries or so is the realization that productivity can be radically altered. Through the application of technology, energy, exchange, stable institutions, and improving human capital, productivity can be radically altered. But these changes have included the need to concentrate wealth into productive assets and assume larger risks in order to effectively achieve greater productivity. We live in a different world from advanced agrarian societies and trying to apply morals from their context directly to ours is useless.

Second, the Jubilee was categorically not a “radical redistributive economic strategy.” Land was to revert back to its perpetual owners every 50 years. Jubilee stated that if someone needed to “sell” their land, then the price would be determined based on the number of crops that could be gathered between the “sale” date and the next Jubilee. Then the land would revert back to the perpetual owner. In other words, it was a lease. A person could “sell” their labor on the same conditions. These provisions only applied to agricultural land and it had nothing to do with non-agricultural land or other private property. Significantly, it ensured that everyone had access to at least a minimal level of capital (land and labor) to provide for themselves and to produce goods for exchange, living individually and corporately as God’s stewards. That has interesting theological implications for thinking about economics but it was not radical redistribution.

Third, from where does abundance come? Apart from maybe air and sunlight, name one thing that humans use that does not require human action to transform matter, energy, and data from a less useful form to a more useful form? Absent human action, there is near absolute scarcity of the things that humanity uses. If we each had to provide for ourselves and our families alone, our days would be a precarious existence, doing little else but hunting and gathering our way through life. But through specialization, technology, concentration of wealth in productive enterprises, and trade (i.e., capitalism) we achieve high levels of productivity resulting in unprecedented abundance. Had Jesus known that productivity could be radically altered, I suspect he may have offered different guidance (and I don't mean a blanket blessing of the American economic system.)

Fourth, just what is the negative impact of inequality that should give us pause? The article doesn't say, but it is strongly implied: If wealth is becoming concentrated at the top, then it must be that it is being taken from others, making them poor (1% are wealthy while 99% are in poverty) ... the rich are getting richer and the poor are getting poorer. She is not alone in this thinking. A recent survey of Americans showed that 66% of respondents think that the proportion of the global population living in poverty has doubled in the past twenty years and another 29% think there has been no change (total of 95%), when in fact the proportion has been halved:

Furthermore, the number of well-paying jobs is expanding around the world. Life expectancy at birth, the most holistic measure of human well-being, is now at 70 years and closing in on the 80 year mark enjoyed by the wealthiest nations. Studies show that inequality within nations is increasing but inequality between nations is falling.

Now none of this is to say that rising inequality is good or bad. We have to be specific by what metric we use. If the metric is that inequality means more poverty and is therefore bad, then the assertion the inequality is "bad" isn't true. People are not getting poorer. That doesn't mean inequality isn't problematic for other reasons but we need to specific about what we are tackling.

Finally,

“Unregulated market capitalism has only one master, and that is money. And that is why 85 people control half the wealth of the whole world.”

Dr. Thistlethwaite, if you identify one nation on the face of the earth that has “unregulated market capitalism,” then I will right you a check for $1,000 right here and now. They don't exist! This issue is not unregulated market capitalism but corporatism. If there is a governance problem it is that the biggest corporate entities and government have joined together to stack things in favor of their mutual interests over and against market forces that might threaten them. That is corporatist business capitalism and antithetical to market capitalism. Furthermore, economists have not reached a consensus on why there has been an increasing concentration at the top but the idea that it is summed up in “unregulated market capitalism” is just absurd.

With all that said, I’m not saying that growth in inequality isn’t a problem and that it isn’t worthy of theological and moral reflection. I am asking for a more responsible discussion.

I will also agree that change largely begins from the bottom up. Muhammad Yunus uses the image of a bonsai tree. The seed that grows into the tiny bonsai tree is the same seed that grows into the tall tree in the forest. The difference is that the bonsai grows from the limited foundation of the flower pot while the tall tree has the rich foundation of the forest bed. The poor are bonsai people. By improving the soil in which they grow, by instituting property rights and rule of law, by including them in networks of productivity and exchange, they too can flourish as people in wealthier nations have. Trickle-up capitalism is a promising strategy. It is already at work around the world. Let's joing them and support them. Populist ideological warfare about poorly defined issues and remedies is nothing but a moralistic distraction. The world deserves better from Christian thinkers.

We present new evidence on trends in intergenerational mobility in the U.S. using administrative earnings records. We find that percentile rank-based measures of intergenerational mobility have remainedextremely stable for the 1971-1993 birth cohorts. For children born between 1971 and 1986, we measure intergenerational mobility based on the correlation between parent and child income percentile ranks. For more recent cohorts, we measure mobility as the correlation between a child’s probability of attending college and her parents’ income rank. We also calculate transition probabilities, such as a child’s chances of reaching the top quintile of the income distribution starting from the bottom quintile. Based on all of these measures, we find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s. However, because inequality has risen, the consequences of the “birth lottery” – the parents to whom a child is born – are larger today than in the past.

Jan 17, 2014

I still hear many people today talk about the "Third World." It refers to those nations that were poor and not aligned with either the Western capitalism (First World) or the communist world (Second World.) The Third World has vanished and it is time to bury the term. The world’s nations and populations exist on a continuum and there are now multiple poles, not two, shaping the world. Furthermore, the story is not one of descent into global dystopia but one of rising prosperity. It is hard to meaningfully address contemporary problems with antiquated frameworks.

It’s time to develop a new framework for assessing the post-Cold War, post-9/11 world. ...

... The three worlds used to be capitalist, communist, and the rest. Now they are the West, the failed states, and the emerging challengers. But that's still too simple a view. A small and declining number of developing countries are charity cases. And none are competitors with us in a zero-sum game. Rather than dividing most of the planet into two threatening classes, we need to see states of the developing world as vital partners—both in strengthening the global economy and in preserving the global environment. ...

... Given that much of the world only makes headlines when it is in the midst of a humanitarian crisis and U.S. assistance is on the way, it isn’t surprising that the average American thinks things are going to hell in a handbasket: a recent survey of Americans found that two thirds believe extreme poverty worldwide has doubled over the past 20 years. The truth is that it has more than halved. This might also explain why Americans think that 28 percent of the federal budget goes to foreign aid—more than 28 times the actual share.

According to the World Bank, the developing world as a whole has seen average incomes rise from $1,000 in 1980 to $2,300 in 2011. Life expectancy at birth has increased from 60 to 69 years over that same time, and college enrollment has climbed from 6 to 23 percent of the college-age population. Progress is happening everywhere, including Africa: Six of the world’s 10 fastest-growing economies over the past decade are in Africa. There were no inter-state conflicts in the world in 2013 and, despite tragic violence in countries including Syria and Afghanistan, the number of ongoing civil wars has dropped considerably over the last three decades. Emerging markets themselves are also playing an ever-expanding role in ensuring global security. The developing world is the major source for blue-helmeted UN peacekeepers, who are ending wars and preserving stability in 16 different operations worldwide. The 20 biggest contributors of police and military personnel to the UN’s 96,887 peacekeepers are developing countries. ...

Jan 16, 2014

Our friend and colleague Max Fisher over at Worldviews has posted another 40 maps that explain the world, building on his original classic of the genre. But this is Wonkblog. We're about charts. And one of the great things about charts is that they show not just how things are -- but how they're changing.

So we searched for charts that would tell not just the story of how the world is -- but where it's going. Some of these charts are optimistic, like the ones showing huge gains in life expectancy in poorer nations. Some are more worryisome -- wait till you see the one on endangered species. But together they tell a story of a world that's changing faster than at arguably any other time in human history. ...

As the author notes, we have challenges but we hardly descending into some global dystopia. I think these charts give a pretty holistic view. Here are a three examples. It was commonly believed that primitive societies were more peaceful and that modern civilization gave rise to unprecedented violence. This chart compares death rates by war in primitive societies as calculated by anthropologists to the death rates for Europe/USA in the 20th century. And then there is this:

The graphs point to environmental protection and adaptation as the biggest problems in the days ahead. Those challenges are not insurmountable. Energy sources like natural gas and nuclear power can be used in the interim on the way to practical renewable technologies. Genetically modified crops can help to reduce water consumption, increase yield, and improve hardiness. Innovations in fields like biotechnology, nanotechnology, and 3-D printing hold the promise of revolutionizing the world economy into a less wasteful and more affordable human existence for everyone. There is work to do but there is also much reason for hope of a better world.

Dec 19, 2013

Economist Timothy Taylor always has interesting posts. Yesterday he posted Worldwide Income Inequality: From Two Humps to One. The world distribution of income 25 years ago had a large hump at the low end and smaller hump at the high end. (If you go back another 20 years, these humps are even more pronounced.) The distribution is now moving more toward a bell curve. Keep in mind that the following graph is logarithmic so the right tail extends way out to the right when scaled otherwise. Still, the shift from the blue line to the green line is movement in a very positive direction. The big question is how do we make this happen better and quicker.

Nov 27, 2013

As a follow-up to my blog post on the Pope Francis and his recent statement on economic inequality, here is what’s been happening on inequality globally. While inequality has increased within countries since 1970s — it’s not just America, gang — it’s dropped between countries. See the above chart from this study (h/t to Overcoming Bias.) When you combine the two, it looks like inequality has been declining.

Very poor countries tend to have high percentages of the population living at subsistence levels with a small fraction of people with high income at the top. That means a distribution with the masses bunched at the bottom with a small tail extending off toward high income.

But the high-income people in these poor countries would not compare to the wealthy in West. The gap between the poorest and richest persons is much smaller in poor countries. As economic growth occurs, the distribution begins to look more like a bell curve where no one is living at subsistence levels but the high-income part of distribution has extended much further out. That is to say that absolute poverty is eliminated but the distance between the bottom and the top widens considerably. Nations are finally becoming more economically developed, thus there is widening within countries but narrowing between countries and narrowing on the global level.

Globalization:
The authors found that metros with more exposure to Chinese trade --
mostly concentrated in the swoosh of states extending
from Indiana down to the Gulf of Mexico and up through North Carolina
-- saw significant job losses, both in manufacturing and overall. For
every $1,000 increase in imports per worker, the share of people with
jobs declined by 0.7 percentage points -- and more for non-college
grads. As manufacturing jobs declined, demand for local services would
decline, and thus job losses could extend into areas like retail and
hotels.

Technology: The computerization of certain
tasks hasn't reduced employment, the authors find. But it has reduced
the availability of decent-paying, routine-heavy jobs. Middle-class
jobs, like clerks and sales people and administration support, have
disappeared as computers gradually learned to perform their routines
more efficiently. But as those jobs disappeared, cities saw an increase
in both high-skill work and lower-paid service sector work, leading to
little overall change in employment. ...

In their paper, Kaplan and Rauh conclude “it’s the market” rather than some class-wafaresque malfeasance at play. Here’s why:

1.The increase in pay at the highest income levels is broad-based:
Public company executives, private company executives, hedge fund and
private equity investors, Wall Street bankers, lawyers, and pro athletes
have all experienced big jumps in pay over the past few decades. ...

2. Typical measures of high-end income inequality are incomplete.
Inequality alarmists typically point to data from Thomas Piketty and
Emmanel Saez which show the share of taxable income accruing to the top
1% up markedly since 1980 and at levels not seen since the Roaring ’20s.
Yet once you add back transfer and taxes, as the Congressional Budget
Office does in its analysis, you find that government policy — including
the tax code — has already been restraining the rise inequality. Kaplan
and Rauh: “In the most recent data from 2009, the
aftertax, after-transfer income share of the top 1 percent was around
the same level as in 1987–1988, 1996, and 2001.”

3. The superrich are getting that way through effort and
education — particularly in industries where tech and globalization play
a big role — rather than through inheritance: ...

It has long been my suspicion that at central player in the
rise of inequality is due to the ongoing race between technological innovation
and development of human capital. During times of rapid increase in
productivity through technological changes, owner of the technology race ahead.
Worker education and formation human capital is slower to adapt. But technology
can only go so far before it must have plentiful workers who have adapted. As
this the gain from technology runs its course the demand for new workers
increases labor begins to race ahead. I'm no expert on these matters but it
seems to that something like that is happening today. It isn't just the U.S.
that experiences this, but the whole industrialized world. Something more
systemic seems to be afoot.

Aug 05, 2013

... Inequality is rising, and that’s a bad thing. What’s worse is that the
issue is getting mixed up with what should be a more pressing debate over
economic opportunity, which would be better kept separate. This is both a
distraction and a danger.

The U.S. system, according to many critics, is fundamentally flawed, its
failings all of a piece. The rich have rigged the system so that the fruits of
the nation’s labor accrue largely to them. Nobody else can get ahead. The
incomes of the middle class stagnate as labor productivity keeps rising. And if
you’re born poor, you stay poor. The plutocrats are killing the American Dream.

This encompassing theory of national decay is wrong. As Scott Winship of the
Brookings
Institution has pointed
out, many of the simple facts that are claimed to support it aren’t so
simple on closer inspection. For one thing, comparing incomes over time for
this purpose isn’t easy. (What’s meant by “income”? Are we discussing
households, individuals, tax units, full-time workers?) You might keep this in
mind: Until the recession, according to the Congressional
Budget Office, U.S. median
household incomes kept rising in inflation-adjusted terms, decade by
decade.

That’s a notable achievement for a country so long at the front of the pack
(and therefore without opportunities for catch-up growth) during a time when
the supply of foreign labor (hence, pressure on rich-country wages) was growing
faster than ever.

Despite what you read, until 2007, most U.S. families were getting ahead. By
global standards, their economic system, far from being fundamentally broken,
has delivered mass affluence. ...

... Inequality has worsened in the U.S., and that’s a problem. But the idea
that plutocrats are enriching themselves at the expense of others needs to be
unpacked. In some cases, it’s true. Some executives have found ways to pay
themselves more than they’re worth to their companies: They’re profiting at
shareholders’ expense. In other cases, though, technology and globalized
markets have boosted the incomes of superstar entertainers, athletes and
business leaders. That’s different. If those innovations hadn’t happened,
incomes would be more equal -- but the middle class wouldn’t be better off.

One basic point is often forgotten: The size of the pie isn’t fixed. It’s
right to ask whether the distribution of incomes is fair and to lean against
worsening inequality -- say, by fixing corporate governance so the market for
top-executive pay works as it should or by taxing the rich more heavily. But
it’s wrong to see the gains at the top as proof of the system’s ingrained
wickedness, or to forget that clumsy intervention might affect everybody else’s
incomes.

The numbers on generational mobility are complicated, too, but one fact is
undisputed: A child of a poor family in the U.S. is more likely to stay poor as
an adult than his counterparts are in many comparable advanced economies. ...

... Miles Corak of the University of Ottawa and other economists argue that high inequality causes low mobility. The
question isn’t settled. I find it easy to believe that the recent surge in the
incomes of the super-rich -- the main driver of U.S. inequality -- will make it
easier for the very richest children to stay very rich, but I find it hard to
believe it will help the poorest to stay poor. They’re separate issues with
separate causes calling for different policy responses, not different symptoms
of the same underlying disease. ...

Cook has keyed in on a key concern of mine. Many people who are concerned
about the poor keep harping on inequality. I am convinced that many who do this
instinctively view the economy as a zero-sum game, namely someone else's win is
someone elses loss. Flowing logically from this is the belief that the wealth
at the top has come directly at the expense of those at the bottom. Solution: A
reduction in the wealth of those at the top will mean a corresponding increase
in wealth for those at the bottom. This is bad reasoning.

It is possible to significantly reduce the wealth of those at the top and
see no significant change in the plight of those at the bottom. The plight for those at the bottom could even get even worse. Conversely, it is possible to improve the plight of
those at the bottom while inequality increases.

The issue for the poor is opportunity and mobility. Why are we not doing
better on these issues? That is a complex question. The issue for inequality is to ask what contribution
to the common good are we rewarding through our socio-economic system.
And let me be clear. Inequality is just and good. Exceptional performers should
be rewarded handsomely and those who are capable of productively employing vast
quantities of assets are contributing to the common good. But is that what actually
has been happening with the wealth accumulation at the top in recent decades?

When I try to decouple these two issues in conversations I find
suspicion is frequently raised that I am justifying the rich or that I’m
indifferent to inequality. In reality, I'm concerned about the poor and
moralistic posturing about inequality isn't going to address their problems. Incredulously,
I'm asked if I believe that the rich shouldn't be required pay more to help
support the social safety net. To which I respond, maybe so. But if we achieve
an adequately funded social safety net, and inequality continues to widen, will
you be satisfied? If not, then your concern isn't about poverty but an
ill-defined need to see less divergence. That is not a poverty issue. We need
to untangle what we are talking about.

I know it makes our world simpler and more satisfying when we can find
scapegoats on which to project our frustrations (i.e., the top 1% is the root
of all evil) but such projections do little to solve problems and can even do
serious harm.

Jul 19, 2013

The poor are getting poorer and the rich are getting richer is common meme these days. The middle class is sinking into poverty as the top 1% just gets wealthier. Is that true?

Economist Mark Perry posted the graph below last week. It has been creating a buzz. (I included it in last Saturday's Saturday Links but I've decided to highlight it here.) He divides family income into low, middle, and high income categories and then charts what percentage of families are in each category over the last forty-five years, using constant (inflation-adjusted) dollars. The chart shows that the percentage in low-income families has modestly decreased, the percentage of middle-income families has dropped by a third, but the percentage of high-income families has become 2.5 times larger.

This chart may actually understate things a bit. I suspect the data is pre-taxes and pre-transfers, in which case I think we would see the low-income family percentage decreasing a little more and modest corresponding changes in the other two groups.

Also, I suspect a significant factor in the change has been the entry of women into the workforce. Few families were two income families in 1967. Families with two full-time wage earners are going to have much higher income. Families left the middle class by becoming two-wage families, not because of constant increases in the real value of individual wages.

Apr 17, 2013

The story of India's economic surge is dominated by two conflicting narratives.

... Delving into the relationship between caste
and entrepreneurship, the researchers have found that scheduled castes
and tribes, the most disadvantaged groups in Hinduism's hierarchy, owned
very little businesses despite a decade of sprightly economic growth
and a long history of affirmative action.

Mining information thrown up by the 2005 economic census
covering more than 42 million enterprises, they found schedule castes
owned only 9.8% of all enterprises in India in 2005, well below their
16.4% share of the total population.

The scheduled tribes owned only 3.7% of non-farm enterprises despite being 7.7% of the population.

However, ownership of business among OBC's - an acronym for
Other Backward Castes or the "middle castes" who "neither suffering the
extreme social and economic discrimination of the Scheduled Castes, nor
enjoying the social privileges of the upper castes" - has grown.

OBCs comprise 41% of India's people. Their members owned
43.5% of all enterprises in 2005, and accounted for 40% of non-farm
employment.

This is a remarkable achievement considering that affirmative action for this group was widely introduced only in the 1990s.

The pattern of dismally low ownership of businesses among the
most disadvantaged groups, the researchers found, is not specific to
any one region or state in India. ...

Apr 11, 2013

Jerry Muller is one of my favorite economic historians. I think this piece offers an insightful analysis of inequality in advanced market economies. As I read this piece I kept thinking back to Robert Fogel's (another favorite economic historian) The Fourth Great Awkening and the Future of Egalitarianism, where he makes the case that the economic challenge of this century is going to be focused on human capital. I don't think the ideologies of the left or right have come to grips with this yet. Muller begins:

Inequality is increasing almost everywhere in the post-industrial
capitalist world. Despite what many think, this is not the result of
politics, nor is politics likely to reverse it. The problem is more
deeply rooted and intractable than generally recognized.

Inequality is an inevitable product of capitalist activity, and
expanding equality of opportunity only increases it -- because some
individuals, families, and communities are simply better able than
others to exploit the opportunities for development and advancement that
today's capitalism affords. Some of the very successes of western
capitalist societies in expanding access and opportunity, combined with
recent changes in technology and economics, have contributed to
increasing inequality. And at the nexus of economics and society is the
family, the changing shape and role of which is an often overlooked
factor in the rise of inequality.

Though capitalism has opened up ever more opportunities for the
development of human potential, not everyone has been able to take full
advantage of those opportunities or to progress very far once they have
done so.

Formal or informal barriers to equality of opportunity, for example,
have historically blocked various sectors of the population -- such as
women, minorities, and poor people -- from benefiting fully from all
capitalism offers. But over time, in the advanced capitalist world,
those barriers have gradually been lowered or removed, so that now
opportunity is more equally available than ever before. The inequality
that exists today arguably derives less from the unequal availability of opportunity than it does from the unequal ability to exploit opportunity.

And that unequal ability, in turn, stems from differences in the
inherent human potential that individuals begin with and in the ways
that families and communities enable and encourage that human potential
to flourish. ...

Mar 16, 2013

1. The Economisthas an interesting graph showing the captialism has led to greater happiness in member countries of the Commonwealth of Independent States (former Soviet Union countries excluding the three baltic countries.)

There are two ways to define economic mobility: 1) absolute mobility, whether each generation is financially better off than the one before; and 2) relative mobility,
whether you can change your income rank vs. your parents. Most
Americans probably think both measures important. We want to be more
prosperous than mom and dad, but also be able to change our
circumstances and make our dreams come true. ...

... A San Francisco Fed study –
using data tracking families since 1968 — looks at both versions of the
American Dream, finding one healthier than the other. Looking
at absolute mobility, researchers Leila Bengali and Mary Daly find the
United States “highly mobile.” Over the sample period, 67% of US adults
had higher family incomes than their parents, including 83% of those in
the lowest birth quintile, or bottom 20% (versus 54% for children born
into the top quintile, or top 20%.) ...

... It’s true that conservatives’
standard proposals for privatizing Social Security and
voucherizing Medicare would shift risk onto beneficiaries -- but
this plainly isn’t a necessary consequence of the basic
principle. I agree with Konczal that adequate insurance against
economic risk, underwritten by the government, is essential. I
also agree that most conservatives aren’t interested in
providing that guarantee. That’s exactly why liberals ought to
take up the ownership society themselves.

Ownership entails risk, it’s true, but insurance can
minimize it. Ownership also provides control, independence and
self-respect -- things it wouldn’t hurt liberals to be more
interested in. And when it comes to inequality and stagnating
middle incomes, ownership can give wage slaves a stake in the
nation’s economic capital.

Done right, an equity component in government-backed saving
for retirement could be the best idea liberals have had since
the earned-income tax credit (oh, sorry, that started out as a
conservative idea as well). ...

Researchers already knew humans, animals and plants have evolved in
response to Earth's gravity and they are able to sense it. What we are
still discovering is how the processes occurring within the cells of the
human and plant bodies are affected by the more intense gravity, or
hypergravity, that would be found on a large planet, or the microgravity
that resembles the conditions on a space craft.

According to estimations, engineers expect the the store to generate
around 265,000 kilowatt hours (kWh) per year. Store operation will only
require 200,000 kWh, so perhaps that extra wattage could be pumped back
into the grid or used to power nearby utilities.

When people can browse potential dates online like items in a catalog, geo-locate hook-ups on an exercise bike just seven feet away, arrange a spontaneous group date with the app Grouper or arrange a bevy of blind dates in succession with Crazy Blind Date, it makes me wonder if all this newfound technological convenience has, in fact, made romance that much more elusive. Now, we may be more concerned with what someone isn't rather than what they are. And as that twenty-something entrepreneur reminded me over coffee, services like OkCupid, and even Facebook, sap a lot of the mystique out of those first few dates. So, sure, it may be easier than ever to score a date, but what kind of date will it really be?

Many of us have read the Bible as if it were merely a mosaic of little
bits – theological bits, moral bits, historical-critical bits, sermon
bits, devotional bits. But when we read the Bible in such a fragmented
way, we ignore it’s divine author’s intention to shape our lives through
its story. All humanity communities live out some story that provides a
context for understanding the meaning of history and gives shape and
direction to their lives. If we allow the Bible to become fragmented, it
is in danger of being absorbed into whatever other story is
shaping our culture, and it will thus cease to shape our lives as it
should. Idolatry has twisted the dominant cultural story of the secular
Western world. If as believers we allow this story (rather than the
Bible) to become the foundation of our thought and action, then our
lives will manifest not the truths of Scripture, but the lies of an
idolatrous culture. Hence the unity of Scripture is no minor matter: a
fragmented Bible may actually produce theologically orthodox, morally
upright, warmly pious idol worshippers! (p. 12).

I wish someone had taught me basic leadership skills.
“I was well grounded in theology and Bible exegesis, but seminary did
not prepare me for the real world of real people. It would have been
great to have someone walk alongside me before my first church.”

I needed to know a lot more about personal financial issues.
“No one ever told me about minister’s housing, social security,
automobile reimbursement, and the difference between a package and a
salary. I got burned in my first church.”

I wish I had been given advice on how to deal with power groups and power people in the church.
“I got it all wrong in my first two churches. I was fired outright from
the first one and pressured out in the second one. Someone finally and
courageously pointed out how I was messing things up almost from the
moment I began in a new church. I am so thankful that I am in the ninth
year of a happy pastorate in my third church.” ...

Mar 12, 2013

... The math of wealth is actually pretty simple: It all boils down to
four things: 1. How much you start with, 2. How much income you make, 3.
How much of your income you save, and 4. How good of a rate of return
you get on your savings.

So one obvious thing we could do to make wealth more equal is - surprise! - redistribution. It turns out that income redistribution and wealth
redistribution have much the same effect on the wealth of the poor and
middle-class. Income redistribution is probably a bit better, for two
reasons. First, people with higher incomes tend to save more, meaning
they build wealth more rapidly. Second, people with higher incomes tend
to have less risk aversion, meaning they are more willing to invest in
assets like stocks (which get high average rates of return, although
they are risky) rather than safe assets like savings accounts and CDs
that get low rates of return.

In other words, giving the poor and middle-class more income will boost the amount they are able to save, the percentage they are willing to save, and the return
they get on those savings. Part of the reason America's wealth
distribution is so unequal in the first place is that our income
distribution is very unequal.

But there are reasons to believe that redistribution can't fix all of
the problem, or even most of it. If you do the math, you discover that
in the long run, income levels and initial wealth (factors 1 and 2 from
above) are not the main determinants of wealth. They are dwarfed by
factors 3 and 4 -- savings rates and rates of return. The most potent
way to get more wealth to the poor and middle-class is to get these
people to save more of their income, and to invest in assets with higher
average rates of return.

As I mentioned, income redistribution helps these things a bit, but
it doesn't account for the whole difference. The rich probably save more
than the poor for many more reasons besides the simple fact that
they're rich. In fact, being willing to save more is probably a big part
of how the rich got rich in the first place. "Cheap" is an insult, but
being cheap is how you get rich. If you consume everything you earn,
your consumption will be higher today, but lower twenty years down the
road; in our consumption-focused society, a lot of people are caught in
this trap. And government can and should help them get out. ...

I heard a lecture by economist Peter Rodriquez of the University of Virginia sometime back. He believes our saving problems of the past generation are partly tied to globalization. As emerging markets grew they had more money to invest than their local economies could profitably absorb. American markets were more stable and reliable so the trend was to invest in the American economy. That meant a flood of capital, keeping borrowing cost low, and rising real estate values as foreigners bought up land for investment, making borrowing to buy real estate seem inordinately attractive. Combine this with weak consumer protection against nefarious lending practices and a poorly overseen financial sector, and the circumstances were ripe for disaster.

The great majority of people who become wealthy without having been born into wealth do so through frugal living and dogged investing. Yes, some get hit with challenges that wipe them out and others get lucky breaks, but the bulk of wealth creation happens through discipline practiced over a lifetime. Somehow we have to recover these values.

Mar 09, 2013

1. The United States had its financial bubble. Europe is having one too. Is China next? If it is, it could reshape the global economy and radically reshape Chinese government. Here is an interesting piece about China's real estate bubble.

... I like the idea of a breaking the Industrial Revolution into stages,
but I would define them in more fundamental terms. The first Industrial
Revolution was the harnessing of large-scale man-made power, which began
with the steam engine. The internal combustion engine, electric power,
and other sources of energy are just further refinements of this basic
idea. The second Industrial Revolution would be the development of
interchangeable parts and the assembly line, which made possible
inexpensive mass production with relatively unskilled labor. The Third
Industrial Revolution would not be computers, the Internet, or mobile
phones, because up to now these have not been industrial tools;
they have been used for moving information, not for making things.
Instead, the rise of computers and the Internet is just a warm-up for
the real Third Industrial Revolution, which is the full integration of information technology with industrial production.

The effect of the Third Industrial Revolution will be to collapse the
distance between the design of a product and its physical manufacture,
in much the same way that the Internet has eliminated the distance
between the origination of a new idea and its communication to an
audience. ...

... Eventually all of the creative ferment of the industrial revolution pays
off in a big “whoosh,” but it takes many decades, depending on where
you draw the starting line of course. A look at the early 19th century
is sobering, or should be, for anyone doing fiscal budgeting today. But
it is also optimistic in terms of the larger picture facing humanity
over the longer run.

5. What are the contours of income inequality in the United States? This 40 minute video by Emmanuel Saez offers some important insights.

6. Futurist Ray Kurzweil is a little too sensationalist for my taste but this vid offers interesting food for thought about nanotechnology and the future sports. We will even be able to have meaningful sports competition?

The recovered wealth - most of it from higher stock prices - has been
flowing mainly to richer Americans. By contrast, middle class wealth is
mostly in the form of home equity, which has risen much less.

We'd like to talk now about new
research on the wealth gap between white and black families in the U.S.
According to a federal survey, the median black family has five cents
for every dollar of wealth owned by their white counterparts. Now, that
gap is obviously very large, but it is also growing. We wanted to talk
more about this, so we've called Washington Post reporter Michael
Fletcher, who wrote about this recently. And he's with us from The
Washington Post's studios.

Welcome back to the program, Michael. Thanks so much for joining us. ...

This is a very informative interview. You can read the transcript at the link above or listen to the interview by clicking here.

Issue 104 examines the impact of automation on Europe and America and the varying responses of the church to the problems that developed. Topics examined are mission work, the rise of the Social Gospel, the impact of papal pronouncements, the Methodist phenomenon, Christian capitalists, attempts at communal living and much more.

"Despite the tough economy, many of the nation’s largest churches are
thriving, with increased offerings and plans to hire more staff, a new
survey shows.

Just 3 percent of churches with 2,000 or more attendance
surveyed by Leadership Network, a Dallas-based church think tank, said
they were affected “very negatively” by the economy in recent years.
Close to half — 47 percent — said they were affected “somewhat
negatively,” but one-third said they were not affected at all. ..."

... It's not surprising that younger entrepreneurial firms are considered more innovative. After all, they are born from a new idea, and survive by finding creative ways to make that idea commercially viable. Larger, well-rooted companies however have just as much motivation to be innovative — and, as Scott Anthony has argued, they have even more resources to invest in new ventures. So why doesn't innovation thrive in mature organizations? ...

... First, he says, the focus of an established firm is to execute an existing business model — to make sure it operates efficiently and satisfies customers. In contrast, the main job of a start-up is to search for a workable business model, to find the right match between customer needs and what the company can profitably offer. In other words in a start-up, innovation is not just about implementing a creative idea, but rather the search for a way to turn some aspect of that idea into something that customers are willing to pay for. ...

... discovering a new business model is inherently risky, and is far more likely to fail than to succeed ...

... Finally, Blank notes that the people who are best suited to search for new business models and conduct iterative experiments usually are not the same managers who succeed at running existing business units. ...

5. A fascinating, if sobering, look at the conflict over islands off the coast of East Asia. Trouble at sea

"President Barack Obama's proposed tilt of U.S. priorities toward the Pacific – and away from the historical link to Europe – represents one of the most encouraging aspects of his foreign policy. Although welcome, we should recognize that this shift comes about three decades too late and that it may miss the rising geopolitical centrality of sub-Saharan Africa and Latin America. The emergence of these longtime historically impoverished backwaters has been largely missed as American policy-makers and businesses are now obsessed with the challenges and opportunities posed by the emergence of China and, to a lesser extent, India. Sub-Saharan Africa, for example, over the past decade has produced six of the world's 10 fastest-growing economies. Through 2011-15, according to the International Monetary Fund, seven of the fastest-growing countries will be African, and Africa as a whole will surpass the slowing growth rates in Asia, particularly China.

This growth has caused the region's poverty rates, still unacceptably high, to fall from 56.5 percent in 1990 to 47 percent today. Further growth will likely push poverty levels down further."

8. New Geography also asks, Is the Family Finished? Some interesting thoughts about the impact of declining birthrates in the U.S.

With more than half the population of many U.S. cities who are
multicultural and Hispanics comprising more and more of the
U.S. population, when does it become meaningless and redundant to
execute marketing strategy that is directed to a general market and a
Latino market perceived to be homogenous?

"It is an easy call if you are either (a) a strict libertarian or (b) an
enthusiastic advocate of the less fortunate with limited concern about
the scarcity of resources. (If you belong to both of those groups,
there is little advice that I can offer.) However, in between those
poles of opinion, things become rather murky, rather quickly."

... Comparing the Democrat and Republican participants turned up differences in two brain regions: the right amygdala and the left posterior insula. Republicans showed more activity than Democrats in the right amygdala when making a risky decision. This brain region is important for processing fear, risk and reward.

Meanwhile, Democrats showed more activity in the left posterior insula, a portion of the brain responsible for processing emotions, particularly visceral emotional cues from the body. The particular region of the insula that showed the heightened activity has also been linked with "theory of mind," or the ability to understand what others might be thinking. ...

... The functional differences did mesh well with political beliefs,
however. The researchers were able to predict a person's political
party by looking at their brain function 82.9 percent of the time. In
comparison, knowing the structure of these regions predicts party
correctly 71 percent of the time, and knowing someone's parents'
political affiliation can tell you theirs 69.5 percent of the time, the
researchers wrote. ...

STERLING, Va. - Perched by a computer monitor wedged between shelves of cough drops and the pharmacy in a bustling Walmart, Mohamed Khader taps out answers to questions such as how often he eats vegetables, whether anyone in his family has diabetes and his age.

He tests his eyesight, weighs himself and checks his blood pressure as a middle-aged couple watches at the blue-and-white SoloHealth station advertising "free health screenings." ...

... As Americans gain coverage under the federal health law, putting increased demand on primary care doctors and spurring interest in cheaper, more convenient care, unmanned kiosks like these may be part of what their manufacturer bills as a "self-service healthcare revolution." ...

Recent developments in the field of nanotechnology might give new
meaning to the phrase “nothing gold can stay.” Atoms and bonds developed
not by Mother Nature, but by scientists, are gaining momentum as the
building blocks for cutting-edge materials.

Using nanoparticles as “atoms” and DNA as “bonds,” Chad Mirkin, the
director of Northwestern University’s International Institute for
Nanotechnology, is constructing his very own periodic table. So far Mirkin has built more than 200 distinct crystal structures with 17 different particle arrangements. ...

Feb 18, 2013

Since President Obama proposed an increase in the federal minimum wage in the U.S.,
from $7.25 per hour to $9 per hour and then index it to inflation, the
debate has been raging about whether or not this would make low wage
workers better paid or not paid at all (or in other words if they would
get unemployed).

The short answer is that it would be a little bit of both, but with
emphasis on little. To understand why we must first examine the issue
theoretically and then look at current U.S. conditions. ...

... If the legal minimum wage is lower or equal to the current pay level,
nothing happens at all. If it is higher than current pay but lower than
marginal productivity then workers get higher pay. If it is higher than
marginal productivity, workers lose their jobs.

Since minimum
wages are usually far below median pay, for most workers nothing
happens. For the small numbers that are affected some will receive a
raise, while others will lose their jobs. The exact proportion of
workers who are unaffacted, of workers who receive higher pay and of
workers who lose their jobs depend on the specific conditions in each
specific country (or state or city) and each specific period of time and
will therefore differ between different locations and different periods
of time ...

This fits makes sound economic sense to me. I think most people intuitively know that if you put the minimum wage at $30 you would wreck the economy. There is an upper limit on high you can go before businesses would be paying people more than the economic value of the labor they are getting in return. Presently, $9 is well below that threshold in most contexts and will therefore have only a modest impact on either improving wages or destroying jobs. I suspect the political and symbolic value is greater than the actual economic impact.

Jan 31, 2013

A concept promulgated by the right —
the notion of the hidden prosperity of the poor — underpins the
conservative take on the ongoing debate over rising inequality.

The
political right uses this concept to undermine the argument made by
liberals that the increasingly unequal distribution of income poses a
danger to the social fabric as well as to the American economy.

President Obama forcefully articulated the case from the left in an address on Dec. 6, 2011 at Osawatomie High School in Kansas:

This
kind of gaping inequality gives lie to the promise that’s at the very
heart of America: that this is a place where you can make it if you try.
We tell people — we tell our kids — that in this country, even if
you’re born with nothing, work hard and you can get into the middle
class. We tell them that your children will have a chance to do even
better than you do. That’s why immigrants from around the world
historically have flocked to our shores.

The
conservative counterargument – that life for the poor and the middle
class is better than it seems – goes like this: Even with stagnant or
modestly growing incomes, the poor and middle class benefit from the
fact that a stable or declining share of income is now required for
basic necessities, leaving more money for discretionary spending.
According to this theory, consumption inequality – the disparity between
the amount of money spent on goods and services by the rich, the middle
class and the poor — remains relatively unchanged, even while income
inequality worsens. ...

I like this article in that I think he does a fairly good job of laying out the conservative argument and then presents his counterargument in measured tones. There is a lot to process here, and there counterarguements to Edsall's arguements, but I appreciate articles that constructively frame issues.

Jan 25, 2013

Back in 1974, Richard Easterlin published a paper called "Does Economic
Growth Improve the Human Lot? Some Empirical Evidence" (available here and here,
for example). Easterlin raised the possibility that what really matters
to most people is not their absolute level of income, but their income
level relative to others in society. If relative income is what matters,
then an overall rise in incomes doesn't make me any better off relative
to others, and so my happiness does not increase. Income becomes a sort
of arms race: even as we all race to get more, it doesn't actually make
us any happier. ...

He concludes with:

... For my own part, I confess that I find happiness surveys both intriguing
and dubious. It seems to me that higher levels of income are typically
correlated with more health, education, travel, consumption, and a
higher quality of recreation, so it's not a surprise to me it seems to
me that happiness rises iwth income. On the other side, it does seem to
me that survey questions about life satisfaction are answered in the
context of a particular place and time. If a person says that their life
satisfaction was a 7 in 1960 on a scale of 0-10, and another person
says that their life satisfaction is a 7 in 2013, are those two people
really equally satisfied? To put it another way, if the person from 2013
was transported by a time machine back to live in 1960, with all their
memories and knowledge of the technologies, medicines, foods, education,
and travel available in 2013, would that time traveller really be
equally happy in either time period? I suspect that when most people are
asked to rank happiness on a scale of 0-10, they don't say to
themselves: "Well, people living 100 years from now might have
extraordinarily high levels of income and technology, so compared with
them, I'm really no more than a 2." At best, survey questions on a scale
of 0-10 seem like an extremely rough-and-ready way of measuring life
satisfaction across very different countries or across substantial
periods of time.

The
OECD defines “middle class” as making $10 to $100 a day, adjusted for
the purchasing power of each currency. Today, people in developing
countries make up almost 30% of the world’s consumer spending, up from
18% a decade ago as they become middle class. This change, what the US
National Intelligence Council called a ”tectonic shift,” is one the most important trends for the next several decades. ...

Jan 10, 2013

Many women have trouble asking for more money at work—but it doesn't have to be that way.

... Many women don't know how to ask for the money. So many, in fact, that Carnegie Mellon runs a Negotiation Academy for Women co-founded by Linda C. Babcock, a professor of economics. Babcock has also co-authored two books on the subject, Women Don't Ask and Ask For It. In her first book, she offers some troubling statistics:

Men initiate negotiations about four times as often as women.

When asked to choose a metaphor to describe the negotiation process, women picked "going to the dentist." For comparison, Men chose "winning a ballgame."

Women enter negotiations with pessimistic expectations about what wage increases are available, and thus if they do negotiate, they don't ask for much: 30 percent less than men.

20 percent of adult women say they never negotiate at all, even when it may be appropriate.

"If you don't ask, you don't get," said Holly Schroth, who holds a doctorate in social psychology and is a senior lecturer at Berkeley's Haas School of Business. ...

Schroth urges female students to vie for larger bonuses and salary increases and offers several strategies. In her experience, women have proven more successful with off-cycle requests, meaning they seek opportunities to negotiate outside of year-end reviews. The best time, Schroth strongly believes, is in the wake of an achievement. ...

Dec 10, 2012

A National Bureau of Economic Research paper by Edward N. Wolff, a New
York University professor and one of the leading U.S. experts on wealth
shares, shows that in 1998, the richest one percent of Americans owned
38.1 percent of the nation's wealth. It has fallen fairly steadily since
then to the current level of 35.4 percent.

And then shows this graph:

The preceding sentence doesn't match the data. The percentage dropped nearly five points between 1998 and 2001, and then began to slowly rise again, though it is true that it has not risen to all-time highs.

I find that median wealth plummeted over the years 2007 to 2010, and by
2010 was at its lowest level since 1969. The inequality of net worth,
after almost two decades of little movement, was up sharply from 2007 to
2010. Relative indebtedness continued to expand from 2007 to 2010,
particularly for the middle class, though the proximate causes were
declining net worth and income rather than an increase in absolute
indebtedness. In fact, the average debt of the middle class actually
fell in real terms by 25 percent. The sharp fall in median wealth and
the rise in inequality in the late 2000s are traceable to the high
leverage of middle class families in 2007 and the high share of homes in
their portfolio. The racial and ethnic disparity in wealth holdings,
after remaining more or less stable from 1983 to 2007, widened
considerably between 2007 and 2010. Hispanics, in particular, got
hammered by the Great Recession in terms of net worth and net equity in
their homes. Households under age 45 also got pummeled by the Great
Recession, as their relative and absolute wealth declined sharply from
2007 to 2010.

I'm having trouble with my SSRN account so I haven't yet been able to look at the article. Lots of interesting facts that need to be reconciled.

Nov 29, 2012

Evidence is mounting that moderate minimum wages can do more good than harm

... America’s academics still do not agree on the employment effects. But
both sides have honed their methods and, in some ways, the gap between
them has shrunk. Messrs Card and Krueger moved on to other work, but
Arindrajit Dube at the University of Massachusetts-Amherst and Michael
Reich of the University of California at Berkeley have generalised the
case-study approach, comparing restaurant employment across all
contiguous counties with different minimum-wage levels between 1990 and
2006. They found no adverse effects on employment from a higher minimum
wage. They also argue that if research showed such effects, these mostly
reflected other differences between American states and had nothing to
do with the minimum wage.

Messrs Neumark and Wascher still demur. They have published stacks of
studies (and a book) purporting to show that minimum wages hit jobs. In
a forthcoming paper they defend their methods and argue that the
evidence still favours their view. But even they are no longer blanket
opponents. In a 2011 paper they pointed out that a higher minimum wage
along with the Earned Income Tax Credit (which tops up income for poor
workers in America) boosted both employment and earnings for single
women with children (though it cost less-skilled, minority men jobs).

Britain’s experience offers another set of insights. The country’s
national minimum wage was introduced at 46% of the median wage, slightly
higher than America’s. A lower floor applied to young people. Both are
adjusted annually on the advice of the Low Pay Commission. Before the
law took effect, worries about potential damage to employment were
widespread. Yet today the consensus is that Britain’s minimum wage has
done little or no harm.

The most striking impact of Britain’s minimum wage has been on the
spread of wages. Not only has it pushed up pay for the bottom 5% of
workers, but it also seems to have boosted earnings further up the
income scale—and thus reduced wage inequality. Wage gaps in the bottom
half of Britain’s pay scale have shrunk sharply since the late 1990s. A
new study by a trio of British labour-market economists (including one
at the Low Pay Commission) attributes much of that contraction to the
minimum wage. Wage inequality fell more for women (a higher proportion
of whom are on the minimum wage) than for men and the effect was most
pronounced in low-wage parts of Britain.

This new evidence leaves economists with lots of unanswered questions.
What exactly is going on in labour markets if minimum wages do not hurt
employment but reduce wage gaps? Are firms cutting costs by squeezing
wages elsewhere? Are they improving the productivity of the lowest-wage
workers? Some of the newest studies suggest firms employ a variety of
strategies to deal with a higher minimum wage, from modestly raising
prices to saving money from lower turnover. ...

Ever wonder why the red and white striped pole is displayed outside many barbershops? Neither have I. Not until I stumbled across a morsel of obscure history about this symbol. I was immediately drawn in.

In the middle ages surgeons and barbers performed most of the operations. Yes, that’s right – barbers. Blood-letting was the most commonly prescribed treatment of the day, a cure for almost every ailment. Surgeons would order it, barbers would do the cutting. The red-and-white-striped pole outside the barbershop was the signpost that blood-letting was performed here. The red represents the blood being drawn, the white represents the tourniquet used, and the pole itself represents the stick squeezed in the patient’s hand to dilate the veins. Interesting, eh?

What I found even more interesting, however, was that for more than 3000 years, from antiquity until the advent of modern scientific medicine, blood-letting was universally accepted as the most effective remedy for almost every disease. It was recommended for the treatment of countless ailments ranging from cholera to cancer, tetanus to tuberculosis, gout to gangrene. It was even prescribed to treat acne and hemorrhoids. Before the circulatory system was understood, a prevailing theory was that blood could stagnate in the extremities. A build-up of bad blood could cause all manner of maladies. The cure was purging.

Every one bought in. For eons. Even in ancient cultures like the Mesopotamians and Egyptians. The Talmud (ancient Israel’s sacred writings) specified certain days for blood-letting. Hippocrates (the father of modern medicine) accepted the practice as good medicine some 500 years before the birth of Christ. So did Socrates and Plato. Early Christian writings offer advice on which saints’ days were favorable for blood-letting. Well into the scientific era the practice continued to prevail. The more blood drawn the better, even to the point of losing consciousness. Many sessions would only end when the patient began to swoon. 1799 George Washington, suffering from a throat infection, requested that he be bled heavily (nearly four pints) and died shortly thereafter.

One typical course of medical treatment began the morning of 13 July 1824. A French sergeant was stabbed through the chest while engaged in single combat; within minutes, he fainted from loss of blood. Arriving at the local hospital he was immediately bled twenty ounces “to prevent inflammation”. During the night he was bled another 24 ounces. Early the next morning, the chief surgeon bled the patient another 10 ounces (285 ml); during the next 14 hours, he was bled five more times. Medical attendants thus intentionally removed more than half of the patient’s normal blood supply—in addition to the initial blood loss which caused the sergeant to faint. Bleedings continued over the next several days. By 29 July, the wound had become inflamed. The physician applied 32 leeches to the most sensitive part of the wound. Over the next three days, there were more bleedings and a total of 40 more leeches. The sergeant recovered and was discharged on 3 October. His physician wrote that “by the large quantity of blood lost, amounting to 170 ounces [nearly eleven pints], besides that drawn by the application of leeches [perhaps another two pints], the life of the patient was preserved”.

“The life of the patient was preserved” by draining thirteen pints of his blood?! Outrageous! Sounds totally absurd today. But is it any more absurd than the widely accepted practice of draining off the strength of able-bodied adults by “curing” them with dependency-producing subsidies? Can we legitimately claim to be “preserving the life” of the needy by weakening their capacity to become self-sufficient? And how absurd is it to measure the effectiveness of our remedy by the volume of recipients who return for repeated “treatments”?

Is harmful medical treatment better than no treatment at all? The French sergeant who survived the blood-letting would doubtless answer “yes”. His surgeon acted upon the best knowledge that was available at the time. Is harmful charity better than no charity at all? Recipients would doubtless urge its continuation. But just as it took centuries of malpractice before the medical profession finally realized that blood-adding, not blood-letting, actually saves lives, so charitable malpractice may have to run its course.

Bloodletting persisted into the 20th century. Not until Pasteur (1822-1895) figured out that germs, not bad blood, cause diseases did the practice begin to fall out of favor. It took many more decades before the practice was finally abandoned. The modern science of microbiology finally brought a 3000 year practice to an end. I can’t help wondering how long it will take the tradition-steeped compassion industry to recognize the need for a fundamental change of practice.

I've actually incorporated the bloodletting metaphor in some writing I've
been doing on economic issues. (Stay tuned.) For millennia, bloodletting was
the preferred method for treating illness. Only in the past century or two have
we learned enough about the human body to see that this is not effective, even
destructive. For millennia, the preferred method for treating poverty was
generosity. Poverty was an inadequate distribution of a fixed amount of wealth.
Only in the past century or two have we really unlocked the powers of
productivity and exchange. Poverty is now more appropriately seen as exclusion
from networks of productivity and exchange.

No metaphor is perfect. Generosity had limited effectiveness over the
millennia and generosity still has a critical role to play today, particularly
in times crisis. But the revolution in productivity and exchange has radically
altered how we address challenges we face.

All my life I've heard that the Bible talks about wealth and poverty more
than any other topic, yet I find very few theologians who have ever taken even
one class in economics. I can probably count on one hand the number who have
had formal training in economics. The irony is that it is often those who most
contextualized the Bible on a range of issues ranging from science, to gender
roles, to slavery, to war, and to government, who I find become the most wooden
and "fundamentalist" on economic questions ... unable (unwilling?) to
make a leap from the advanced agrarian societies of the Bible era to modern
economies, sometimes even pining for retreat from the dark dystopian present
back to the bucolic bliss of the past. (And just to be fair, those that are
most "fundamentalist" on so many other issues want to baptize our
present economic order as the "biblical" model.) We aren’t going back,
and idealistic models like distributism and liberationism, or any other model
that doesn’t seriously take into account issues of productivity and exchange, offer
no guidance for the future.

There are many challenges confronting the church of Jesus Christ but I
continue to be convinced that it is the church's inability to come to grips
with modern economic order, and by extension the inability to help people find
meaning in the our present context and equip them for ministry in our present
context, that is at the top of the list of challenges.

Nov 12, 2012

... The principle of solidarity is a sense of the common good, of the
natural and supernatural connections that bind us one to another, and of
our responsibility toward one another.

In individual cases, the
application of the principle is a reminder of the clear moral imperative
that the wealthy exercise their sacred obligation to aid the less
advantaged and to work toward the betterment of everyone. ...

... This principle of
solidarity in relationship to government action means that state
government — and many times the federal government — are appropriate
vehicles to direct the use of wealth collected through taxes or
otherwise for the common good. We see this in such things as
unemployment insurance and in Social Security. ...

... Subsidiarity is the principle that says that in matters economic and
political, the preference is always to be given to the most local level
of authority that can handle the matter. We don’t appeal lemonade stand
issues to state regulatory authority; at least I hope not. So, too, with
questions such as traffic, employment issues and health concerns
solutions should be found at the most local level possible.

This
principal does not negate the idea that sometimes the federal government
must be involved, but the preference is clearly for solutions to be
found at the local level if possible. ...

... Catholic social teaching emphasizes the application of both the
principle of subsidiarity and the principle of solidarity. The two are
not meant to be mixed and balanced; instead one principle acts as a
check on the other principle.

There is no Christian doctrine that
clearly defines when and how the two principles are to be applied, when
one is meant to be used to check the other. Instead, the application of
the two principles — subsidiarity and solidarity — where one principle
limits the over-application of the other principle, is an exercise of
prudent judgment.

Nov 05, 2012

Why did inequality never become the
defining issue of the 2012 campaign? It appears that voters,
intuitively, don’t see it as the problem some politicians would
have us believe.

Even economists disagree over how bad inequality is, the
correct way to measure it, why it’s increasing and what to do
about it. And most Americans, no matter how humble their
circumstances, don’t resent the wealthy so much as strive to get
rich, too. One point on which economists do seem to agree is
that income inequality by itself isn’t harmful -- except when
it’s so great that the scales of opportunity tilt. On that
score, the U.S. has reason to worry.

Median household income is lower than it was a decade ago.
At the same time, the gap between rich and poor has widened.
Economists recently reported that the top 1 percent receive
about a fifth of the national income -- up from less than a 10th
in 1970 -- and control about a third of the country’s wealth.

The data, however, overstate inequality by not counting
government transfers such as food stamps, unemployment insurance
and Social Security. When these things are included, every
income group shows modest gains from 1997 to 2007. When health
benefits are also calculated, income disparity really drops off,
with the bottom 20 percent registering income growth of about 26
percent. The top 5 percent show a 63 percent increase. ...

... Where does this leave us? If income inequality by itself
isn’t bad, and if it’s not a zero-sum game, it’s debatable
whether the tax system should be used to close the rich-poor
chasm. Redistributing income might choke off growth. But with
the opportunity gap growing, the tax code certainly shouldn’t
encourage more inequality, as it now does. In that spirit, here
are three tax and education reforms that might help rebalance
the opportunity scales:

The estate tax is a good starting point. ...

Restricting these breaks would help make the tax code more
progressive without redistributing income by raising rates. ...

Another idea catching on with lawmakers in both parties is
education savings accounts, which work like 401(k) retirement
plans. ...

Oct 31, 2012

Bono has learned much about music over more than three decades with U2.
But alongside that has been a lifelong lesson in campaigning — the
activist for poverty reduction in Africa spoke frankly on Friday about
how his views about philanthropy had now stretched to include an
appreciation for capitalism.

The Irish singer and co-founder of ONE,
a campaigning group that fights poverty and disease in Africa, said it
had been “a humbling thing for me” to realize the importance of
capitalism and entrepreneurialism in philanthropy, particularly as
someone who “got into this as a righteous anger activist with all the
cliches.”

“Job creators and innovators are just the key, and aid is just a
bridge,” he told an audience of 200 leading technology entrepreneurs and
investors at the F.ounders tech
conference in Dublin. “We see it as startup money, investment in new
countries. A humbling thing was to learn the role of commerce.” ...

Poverty is not first and foremost an absence wealth. Poverty is
exclusion from networks of productivity and exchange. Inclusion into
those networks is the solution.

Economic development has three stages, much like triage. Stage 1 is
relief. The bleeding has to be stopped and the patient has to be
stabilized. Stage 2 is rehabilitation. Wounds need to be healed and the
person needs to be nurtured to health. Stage 3 is development. Assisting
a relatively healthy patient toward greater health and flourishing.

In the face of a natural disaster like a tsunami or a hurricane, we
must do relief. Water, food, clothing, shelter, and medical care are
paramount. Once the situation is stabilized comes a time of rebuilding
basic infrastructure. But if we want to help beyond relief and
rehabilitation, the focus must be upon expanding inclusion in networks
of productivity and exchange. All three stages are necessary but all
three have a different focus.

The propensity of Western advocates for the poor is to see most
instances of poverty as problems needing relief, with maybe some cases
needing rehabilitation. Economic development isn't even on the radar.
(And in fact, words like "markets" and "development" are voiced with
derision in some quarters.) But at any given moment, very few poor
nations are in need of significant relief, some could use rehabilitative
work, and most need economic development. We treat countries needing
economic development as victims needing relief. The consequences can be
devastating.

When
aid grows to be about 7% of nation's economy a transformation begins to
take place. National leaders turn their attention away from their
domestic business sector. They feel less and less accountabile to making
their domestic economy work or to being responsive to their
constituents. Their energies turn toward the aid giver. The mission
becomes retention and expansion of aid.

Yet Western advocates talk in terms of the West has X% of the world's
wealth while sub-Saharan African countries have only Y%. Solution? Give
wealth to equalize the difference and "relieve" the poverty. As Bono
has learned, this "relief" orientation is not only not the answer, it is
a contributor to sustained impoverishment. Development and expansion of
networks of productivity and exchange are the answer.

Oct 27, 2012

Each week I spend considerable time scanning headlines as I look for stories to blog about at the Kruse Kronicle. I clip them into an Evernote Notebook and usually twice a day I select one or two to link and discuss. A number of interesting stories never make it on to the blog.

So this week I'm beginning what I hope will be a regular Saturday feature. Each Saturday I will post links I did not use the previous week. For now I will call it "Saturday Links." Happy clicking!

3. Icon of the American Libertarian movement, Murray Rothbard, once asked, "Why won't the left acknowledge the difference between deserving poor and
undeserving poor. Why support the feckless, lazy & irresponsible?" Chris Dillow gives a libertarian response affirming the need to Support the undeserving poor.

"I can easily imagine my graph in a Julian Simon or Steven Pinker chapter
on human progress and the decline in violence. Even though I have no
philosophical objection to the death penalty, it's hard not to interpret
this 400-year pattern as a strong sign of human betterment."